omniture

Simcere Pharmaceutical Group Reports Preliminary Unaudited Third Quarter 2013 Results

2013-11-14 18:25 2165

NANJING, China, November 14, 2013 /PRNewswire/ -- Simcere Pharmaceutical Group ("Simcere" or the "Company") (NYSE: SCR), a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded generic and proprietary pharmaceuticals in China, today reported preliminary unaudited financial results for the quarter ended September 30, 2013.

Highlights

Revenue from continuing operations for the third quarter of 2013 was RMB421.3 million (US$68.8 million), a decrease of 16.5% compared to RMB504.7 million for the same period in 2012. Revenue from continuing operations for the first nine months of 2013 was RMB1,408.2 million (US$230.1 million), a decrease of 3.8% from RMB1,463.8 million for the same period in 2012.

Gross margin from continuing operations for the third quarter of 2013 decreased to 76.0% compared to 84.2% for the same period in 2012. For the first nine months of 2013, gross margin decreased to 79.9% compared to 83.9% for the same period in 2012.

Operating loss from continuing operations was RMB125.5 million (US$20.5 million) for the third quarter of 2013, compared to operating income from continuing operations of RMB26.5 million for the same period in 2012. The operating loss was primarily due to the impairment charge for goodwill and intangible assets along with the inventory write-down for the vaccine reporting unit in the third quarter of 2013.Operating loss from continuing operations was RMB73.2 million (US$12.0 million) for the first nine months of 2013, compared to operating income from continuing operations of RMB98.4 million for the same period in 2012.

Net income attributable to Simcere from continuing operations for the third quarter of 2013 was RMB167.0 million (US$27.3 million), an increase of 944.2% from RMB16.0 million for the same period in 2012, primarily due to the gain arising from the sale of equity interest in Kanda Biotech Holding Limited ("Kanda"), partially offset by the impairment charge of goodwill and intangible assets and inventory write-down. Net income attributable to Simcere from continuing operations for the first nine months of 2013 was RMB197.9 million (US$32.3 million), an increase of 220.3% from RMB61.8 million for the same period in 2012.

Net income attributable to Simcere was RMB384.1 million (US$62.8 million) for the third quarter of 2013, a significant increase from RMB22.2 million for the same period in 2012, primarily due to the gain arising from the sale of equity interest in Kanda and Jilin Boda Pharmaceutical Co., Ltd. ("Boda"), partially offset by the impairment charge for goodwill and intangible assets and inventory write-down. Net income attributable to Simcere was RMB436.8 million (US$71.4 million) for the first nine months of 2013, an increase of 461.7% from RMB77.8 million for the same period in 2012.

In July 2013, the Company sold its approximately 99.99% equity interest in Boda to Zhuhai Rongding Equity Investment Partnership L.P. for a total cash consideration of RMB400.0 million (US$65.4 million). Boda was the manufacturer of Yidasheng. In accordance with U.S. GAAP, Boda's operating results and the gain from the disposal are presented as discontinued operations. The preliminary unaudited condensed consolidated statements of income have been retrospectively modified to distinguish between continuing operations and discontinued operations.

In July 2013, the Company sold all its equity interest in Kanda which holds Shanghai Celgen Bio-Pharmaceutical Co., Ltd. ("Celgen") and other assets to Devont Asset Management Limited for a total cash consideration of RMB302.0 million (US$49.3 million). The company realized RMB233.8 million (US$38.2 million) gain from the sale, which has been reflected in earnings (losses) from continuing operations before income taxes of the consolidated statement of income.

Management of the Company performed impairment testing for the goodwill and intangible assets of the vaccines reporting unit as of September 30, 2013 as triggered by the expectation that the Company may not realize production and sales of influenza vaccines in 2013 as previously planned. Based on the revised expectation, management reassessed the present operating status and future expectation of the Company in the vaccine industry and revised its sales forecast, leading to an impairment loss of RMB106.4 million (US$17.4 million) for goodwill and RMB19.0 million (US$3.1 million) for the intangible assets. The impairment loss has been reflected in income (losses) from operations of the consolidated statement of income. In the meantime, RMB 26.1 million (US$ 4.3 million) of inventory write-down has been provided in the third quarter of 2013.

Mr. Hongquan Liu, Executive Director and Chief Executive Officer of Simcere Pharmaceutical Group said: "In the third quarter, we completed the sale of our equity interest in Boda and Kanda, which is consistent with our future business strategy, enabling us to focus more effectively on our core business. While third quarter sales declined due to the impact of price policy and issues related to EDL tendering, we were pleased to see that our cost control measures are proving effectual."

2013 Third Quarter Financial Results

Revenue from continuing operations for the third quarter of 2013 was RMB421.3 million (US$68.8 million), a decrease of 16.5% compared to RMB504.7 million for the same period in 2012. Revenue from continuing operations for the first nine months of 2013 was RMB1,408.2 million (US$230.1 million), a decrease of 3.8% from RMB1,463.8 million for the same period in 2012.

The tables below set forth the Company's top 10 products, excluding Yidasheng which was manufactured by Boda, a subsidiary disposed of by the Company, by revenue for the three months ended September 30, 2013 and the nine months ended September 30, 2013:

In Thousands
















Three months ended September 30, 2013


Three months ended September 30, 2012




RMB


USD


% of total
revenue


RMB


% of total
revenue

Change

Products

Therapeutic Area












Bicun

Neuroscience


115,324


18,844


27.4%


160,37


31.8%

(28.2%)

Endu

Oncology


75,854


12,394


18.0%


70,519


14.0%

7.6%

Yintaiqing

Inflammation


42,944


7,017


10.2%


52,123


10.3%

(17.6%)

Sinofuan

Oncology


34,836


5,692


8.3%


40,667


8.1%

(14.3%)

Biqi

Gastroenterology


24,820


4,056


5.9%


17,900


3.5%

38.7%

Jiebaishu

Oncology


21,187


3,462


5.0%


19,047


3.8%

11.2%

Zailin

Infectious Disease


15,017


2,454


3.6%


53,999


10.7%

(72.2%)

Faneng

Anti-Osteoporosis


13,033


2,130


3.1%


11,564


2.3%

12.7%

Anxin

Infectious Disease


12,191


1,992


2.9%


15,385


3.0%

(20.8%)

Iremod

Inflammation


11,966


1,955


2.8%


7,170


1.4%

66.9%

Others



54,129


8,844


12.8%


55,804


11.1%

(3.0%)

Total



421,301


68,840


100.0%


504,715


100.0%

(16.5%)




Nine months ended September 30, 2013


Nine months ended September 30, 2012




RMB


USD


% of total
revenue


RMB


% of total
revenue

Change

Products

Therapeutic Area












Bicun

Neuroscience


365,893


59,786


26.0%


448,552


30.6%

(18.4%)

Endu

Oncology


244,404


39,935


17.4%


193,647


13.2%

26.2%

Yintaiqing

Inflammation


136,517


22,307


9.7%


129,198


8.8%

5.7%

Zailin

Infectious Disease


120,312


19,659


8.5%


175,661


12.0%

(31.5%)

Sinofuan

Oncology


113,266


18,508


8.0%


121,640


8.3%

(6.9%)

Biqi

Gastroenterology


76,413


12,486


5.4%


66,620


4.6%

14.7%

Jiebaishu

Oncology


57,257


9,356


4.1%


53,781


3.7%

6.5%

Anxin

Infectious Disease


41,325


6,752


2.9%


45,674


3.1%

(9.5%)

Faneng

Anti-Osteoporosis


39,026


6,377


2.8%


29,210


2.0%

33.6%

Anqi

Antibacterial


29,098


4,755


2.1%


40,422


2.8%

(28.0%)

Others



184,736


30,185


13.1%


159,363


10.9%

15.9%

Total



1,408,247


230,106


100.0%


1,463,768


100.0%

(3.8%)














Gross margin from continuing operations for the third quarter of 2013 decreased to 76.0% compared to 84.2% for the same period in 2012. The decrease was mainly due to the inventory write-down for the influenza vaccine reporting unit and the drop in sales of products with higher gross margins as a percentage of total sales. Gross margin excluding the impact of inventory write-down was 82.2% in the third quarter of 2013. For the first nine months of 2013, gross margin decreased to 79.9% compared to 83.9% for the same period in 2012.

Research and development expenses from continuing operations for the third quarter of 2013 totaled RMB47.5 million (US$7.8 million) which represented a decrease of 26.5% from RMB64.7 million for the same period in 2012. The decrease occurred as the Company completed development of its influenza vaccine and began commercial manufacturing. As a percentage of revenue from continuing operations, research and development expenses from continuing operations decreased to 11.3% for the third quarter of 2013 from 12.8% for the same period in 2012. For the first nine months of 2013, research and development expenses from continuing operations totaled RMB136.8 million (US$22.4 million), compared to RMB166.0 million for the same period in 2012.

Sales, marketing and distribution expenses from continuing operations for the third quarter of 2013 were RMB206.8 million (US$33.8 million), which represented a decrease of 31.1% from RMB300.2 million for the same period in 2012.The decrease was the result of a drop in travelling and conference expenses and promotional expenses. As a percentage of total revenue from continuing operations, sales, marketing and distribution expenses from continuing operations decreased to 49.1% for the third quarter of 2013 from 59.5% for the same period in 2012. For the first nine months of 2013, sales, marketing and distribution expenses from continuing operations were RMB743.1 million (US$121.4 million), which represented a decrease of 10.9% from RMB834.4 million for the same period in 2012.

General and administrative expenses from continuing operations were RMB66.1 million (US$10.8 million) for the third quarter of 2013, which represented an increase of 13.6% from RMB58.2 million for the same period in 2012. The increase was primarily due to legal and professional fees incurred during the Company's going-private process and the share-based compensation expenses as noted in the paragraph below. As a percentage of revenue from continuing operations, general and administrative expenses increased to 15.7% for the third quarter of 2013 from 11.5% for the same period in 2012. For the first nine months of 2013, general and administrative expenses from continuing operations were RMB192.7 million (US$31.5 million), which represented an increase of 13.0% from RMB170.4 million for the same period in 2012.

Share-based compensation expenses, which were allocated to research and development expenses, sales, marketing and distribution expenses, and general and administrative expenses, based on the nature of the work that the relevant employee was assigned to perform, totaled RMB8.9 million (US$1.5 million) for the third quarter of 2013. Share-based compensation expenses for the third quarter of 2012 were RMB3.9 million. For the first nine months of 2013, share-based compensation expenses totaled RMB27.1 million (US$4.4 million), which represented an increase of 159.1% from RMB10.5 million for the same period in 2012. The increase was primarily due to restricted shares granted to our management in the second half of 2012.

Operating loss from continuing operations was RMB125.5 million (US$20.5 million) for the third quarter of 2013, compared to operating income from continuing operations of RMB26.5 million for the same period in 2012. The unfavorable result was due to the impairment charge for the goodwill and intangible assets of the influenza vaccine reporting unit along with the inventory write-down for influenza vaccines in the third quarter of 2013. Operating loss from continuing operations was RMB73.2 million (US$12.0 million) for the first nine months of 2013, compared to operating income from continuing operations of RMB98.4 million for the same period in 2012.

Income tax benefit from continuing operations for the third quarter of 2013 was RMB5.8 million (US$0.9 million), compared to income tax expense of RMB3.2 million for the third quarter in 2012. The income tax benefit in the third quarter of 2013 was due to tax losses of the Company's PRC subsidiaries. For the first nine months of 2013, income tax benefit from continuing operations was RMB10.6 million (US$ 1.7million), compared to income tax expense of RMB 5.9 million for the same period in 2012. This was primarily due to the reversal of an unrecognized tax benefit and related accrued cumulative interest as a result of a lapse of the statute of limitations in accordance to the PRC Tax Administration and Collection Law in the second quarter.

Income from discontinued operations, net of tax, was RMB217.1 million (US$35.5 million) and RMB6.2 million for the third quarter of 2013 and 2012, respectively. The favorable result was mainly due to gain realized from the disposal of Boda. For the first nine months of 2013, income from discontinued operations, net of tax, was RMB238.9 million (US$39.0 million), a significant increase from RMB16.0 million for the same period in 2012.

Net income attributable to Simcere was RMB384.1 million (US$62.8 million) for the third quarter of 2013, which consists of net income attributable to Simcere from continuing operations of RMB167.0 million (US$27.3 million) and net income attributable to Simcere from discontinued operations of RMB217.1 million (US$35.5 million). Net income attributable to Simcere from continuing operations for the third quarter of 2013 increased by 944.2% from RMB16.0 million for the same period in 2012, primarily due to gain arising from the sale of equity interest in Kanda Biotech, partially offset by the impairment charge of goodwill and intangible assets. For the first nine months of 2013, net income attributable to Simcere was RMB436.8 million (US$71.4 million) which consists of net income attributable to Simcere from continuing operations of RMB197.9 million (US$32.3 million) and net income attributable to Simcere from discontinued operations of RMB238.9 million (US$39.0 million). For the first nine months of 2012, net income attributable to Simcere was RMB77.8 million which consists of net income attributable to Simcere from continuing operations of RMB61.8 million and net income attributable to Simcere from discontinued operations of RMB16.0 million.

Basic and diluted earnings per American Depository Share ("ADS") from continuing operations for the third quarter of 2013 were RMB3.16 (US$0.52) and RMB3.11 (US$0.51), respectively. Basic and diluted earnings per ADS from continuing operations for the first nine months of 2013 were RMB3.76 (US$0.61) and RMB3.70 (US$0.60), respectively. Basic and diluted earnings per ADS from discontinued operations for the third quarter of 2013 were RMB4.12 (US$0.67) and RMB4.04 (US$0.66), respectively. Basic and diluted earnings per ADS from discontinued operations for the first nine months of 2013 were RMB4.54 (US$0.74) and RMB4.47 (US$0.73), respectively. One ADS represents two ordinary shares of the Company.

As of September 30, 2013, the Company had cash and restricted cash of RMB871.8 million (US$142.5 million), compared to RMB201.6 million as of December 31, 2012. The increase was primarily due to cash consideration received from the sale of equity interest in Kanda Biotech and Boda.

Financial Information

The preliminary unaudited condensed consolidated statements of income and balance sheets accompanying this press release have been prepared by management using U.S. GAAP. This preliminary financial information is not intended to fully comply with U.S. GAAP because it does not present all of the financial information and disclosures required by U.S. GAAP.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "anticipate," "believe," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "predict," "should" and "will" and similar expressions. In particular, the quotations from management in this press release contain forward-looking statements. These forward looking statements are based upon management's current views and expectations with respect to future events and are not a guarantee of future performance. Furthermore, these statements are, by their nature, subject to a number of risks and uncertainties that could cause actual performance and results to differ materially from those discussed in the forward-looking statements as a result of a number of factors. Further information regarding these and other risks is included in Simcere's filings with the U.S. Securities and Exchange Commission at www.sec.gov. Simcere does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Conference Call

Simcere Pharmaceutical Group will host a conference call to discuss the Company's results for the third quarter of 2013 on Thursday, November 14, at 8:00 a.m. Eastern Time (Thursday, November 14 at 9:00 p.m. Beijing/Hong Kong time). The management team will be on the call to discuss the results for the third quarter of 2013 and to answer questions.

To access the conference call, please dial:

International toll:

+65.6723.9381

United States toll-free:

+1.866.519.4004

United States toll:

+1.845.6750.437

China Domestic toll:

800.819.0121

China Domestic mobile toll:

400.620.8038

Hong Kong toll:

+852.2475.0994

Please ask to be connected to Q3 2013 Simcere Pharmaceutical Group Earnings Conference Call and provide the following pass code: 94745140.

Simcere will also broadcast a live audio webcast of the conference call. The broadcast will be available by visiting the "Investor Relations" section of the company's web site at www.simcere.com.

Following the earnings conference call, an archive of the call will be available by dialing:

United States toll-free:

+1.855.452.5696

United States toll:

+1.646.254.3697

The pass code for replay participants is 94745140. The telephone replay also will be archived on the "Investor Relations" section of the company's web site for seven days following the earnings announcement.

About Simcere Pharmaceutical Group

Simcere Pharmaceutical Group (NYSE: SCR, Simcere) is a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded and proprietary pharmaceuticals in China. Simcere concentrates its research and development efforts on the treatment of diseases with high incidence and/or mortality rates and for which there is a clear demand for more effective pharmacotherapy such as cancer, strokes, cardiovascular disease, infectious diseases and pain. For more information about Simcere Pharmaceutical Group, please visit www.simcere.com.

Investor and Media Contacts:

Email: ir@simcere.com

In Nanjing:

In the United States:

Vivien Liang

Cindy Zheng

Simcere Pharmaceutical Group

Brunswick Group

Tel: 86-25-8556-6666*8857

Tel: 1-212-333-3810



In Beijing:


Yue Yu


Brunswick Group


Tel: 86-10-5960-8600






SIMCERE PHARMACEUTICAL GROUP

PRELIMINARY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND ADS DATA)



Three months ended September 30,


Nine months ended September 30,


2012


2013


2013


2012


2013


2013


RMB


RMB


USD


RMB


RMB


USD

Product revenue

504,715


421,301


68,840


1,463,768


1,408,247


230,106

Total revenue

504,715


421,301


68,840


1,463,768


1,408,247


230,106

Cost of materials and production

(79,933)


(101,068)


(16,514)


(234,940)


(283,458)


(46,317)

Gross profit

424,782


320,233


52,326


1,228,828


1,124,789


183,789













Operating expenses and other operating

income:












Research and development

(64,673)


(47,520)


(7,765)


(165,956)


(136,818)


(22,356)

Sales, marketing and distribution

(300,208)


(206,766)


(33,785)


(834,424)


(743,135)


(121,427)

General and administrative

(58,217)


(66,128)


(10,805)


(170,446)


(192,682)


(31,484)

Impairment on goodwill and intangible

assets*

-


(125,365)


(20,485)


-


(125,365)


(20,485)

Gain arising from loss of control

of a subsidiary

24,789


-


-


24,789


-


-

Other operating income

-


-


-


15,650


-


-

Income (losses) from operations

26,473


(125,546)


(20,514)


98,441


(73,211)


(11,963)













Interest income

757


6,746


1,102


2,715


8,591


1,404

Interest expense

(15,466)


(12,024)


(1,965)


(52,357)


(35,731)


(5,838)

Foreign currency exchange losses

(239)


(1,162)


(190)


(842)


(1,538)


(251)

Other income

3,996


1,318


215


8,185


6,029


985

Gain arising from disposal of

-


233,773


38,199


-


233,773


38,198

affiliated companies





Equity in losses of equity method affiliated

companies

(5,994)


(8,705)


(1,422)


(10,921)


(31,831)


(5,201)

Earnings from continuing operations

before income taxes

9,527


94,400


15,425


45,221


106,082


17,334













Income tax (expenses) benefits

(3,207)


5,776


944


(5,945)


10,595


1,731

Net Income from continuing operations

6,320


100,176


16,369


39,276


116,677


19,065













Earnings from discontinued operations

6,409


232,192


37,940


16,371


257,727


42,112

before income taxes

















Income tax expenses

(238)


(15,062)


(2,461)


(393)


(18,825)


(3,076)

Income from discontinued operations, net

of tax

6,171


217,130


35,479


15,978


238,902


39,036

Net Income

12,491


317,306


51,848


55,254


355,579


58,101

Net loss attributable to the non-controlling

interests

9,669


66,783


10,912


22,503


81,197


13,268

Net income attributable to

Simcere Pharmaceutical Group

shareholders

22,160


384,089


62,760


77,757


436,776


71,369













Net income attributable to Simcere

Pharmaceutical Group shareholder from

continuing operations

15,989


166,960


27,281


61,780


197,877


32,333

Net income attributable to Simcere

Pharmaceutical Group shareholder from

discontinued operations

6,171


217,129


35,479


15,977


238,899


39,036

Earnings per share attributable to

Simcere from continuing operations:












Basic

0.15


1.58


0.26


0.57


1.88


0.31

Diluted

0.15


1.55


0.25


0.57


1.85


0.30













Earnings per share attributable to

Simcere from discontinued operations:












Basic

0.06


2.06


0.34


0.15


2.27


0.37

Diluted

0.06


2.02


0.33


0.15


2.23


0.36













Earnings per ADS attributable to

Simcere from continuing operations:












Basic

0.30


3.16


0.52


1.15


3.76


0.61

Diluted

0.30


3.11


0.51


1.15


3.70


0.60













Earnings per ADS attributable to

Simcere from discontinued operations:












Basic

0.12


4.12


0.67


0.30


4.54


0.74

Diluted

0.12


4.04


0.66


0.30


4.47


0.73













Weighted average number of ordinary

shares:












Basic

106,517,423


105,525,617


105,525,617


107,592,694


105,332,033


105,332,033

Diluted

106,693,034


107,474,892


107,474,892


107,822,027


106,985,425


106,985,425

* Impairment of goodwill and intangible assets is subject to the completion of the valuation work and may be adjusted.

SIMCERE PHARMACEUTICAL GROUP

PRELIMINARY UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(AMOUNTS EXPRESSED IN THOUSANDS)








December 31,


September 30,


September 30,


2012


2013


2013


RMB


RMB


USD

Assets






Current assets






Cash and pledged bank deposits

201,556


871,832


142,456

Held-to-maturity securities

-


564,000


92,157

Assets held for sale

90,550


-


-

Bills receivable

679,630


367,130


59,989

Accounts receivable, net

413,481


475,229


77,652

Inventories

120,932


108,973


17,806

Other current assets

237,248


311,854


50,956

Total current assets

1,743,397


2,699,018


441,016

Property, plant and equipment, net

853,546


765,847


125,138

Land use rights

128,220


117,553


19,208

Goodwill and intangible assets, net

519,334


295,741


48,324

Investment in equity method investments

56,785


28,238


4,614

Other non-current assets

71,381


124,342


20,317

Total assets

3,372,663


4,030,739


658,617

Liabilities






Current liabilities






Short-term borrowings

675,779


720,520


117,732

Accounts payable

47,136


42,748


6,985

Bills payable

15,000


15,000


2,451

Other payables and accrued liabilities

471,603


560,870


91,645

Total current liabilities

1,209,518


1,339,138


218,813

Long-term borrowings

2,000


186,440


30,464

Deferred tax liabilities

56,120


35,315


5,771

Other liabilities

32,657


21,195


3,463

Total liabilities

1,300,295


1,582,088


258,511

Shareholders' equity






Simcere shareholders' equity






Ordinary shares at par

8,258


8,288


1,354

Additional paid-in capital

853,551


880,720


143,909

Accumulated other comprehensive loss

(104,147)


(104,347)


(17,050)

Retained earnings

1,254,464


1,691,240


276,346

Total equity attributable to Simcere

2,012,126


2,475,901


404,559

Non-controlling interest

60,242


(27,250)


(4,453)

Total shareholders' equity

2,072,368


2,448,651


400,106

Commitments and contingencies






Total liabilities and shareholders' equity

3,372,663


4,030,739


658,617


Note: The conversions of Renminbi (RMB) into United States dollars (USD) as at the reporting dates are based on the noon buying rate of USD1.00 = RMB6.1200 on September 30, 2013 as set forth in the H. 10 statistical release of the Federal Reserve Board. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into U.S. dollars at that rate on the reporting dates.

Source: Simcere Pharmaceutical Group
collection